‘A dense population in extreme distress inhabits an island’ – that is how Disraeli began to define the Irish Question in the Commons in 1844. Without much hyperbole, it also defines the current state of the UK. Over halfway through the two-year time limit prescribed by article 50, but with no Brexit deal in sight, the Irish Question still resonates: now less about a united independent Ireland, rather more about an independent but divided Britain.
The Irish Republic, whose economy and culture are closer to the UK than any other, is the only EU member state that also shares a land border. Resolving this 310-mile conundrum – maintaining the open border guaranteed by the Good Friday Agreement while finessing its position in the EU single market and customs union – has become a fault line between the government in London and EU leaders. The Irish taoiseach, Leo Varadkar, has ruled out tripartite talks on the issue and rejected Theresa May’s suggestion that customs arrangements on the US-Canada border could provide a post-Brexit model.
Politicians aside, some of the keenest observers of events sit 100km south of the border – in the offices of Dublin’s elite law firms. ‘The pervading word is uncertainty: what a complex thing to try and resolve in a very short period of time,’ says Julian Yarr, managing partner of A&L Goodbody.
‘Most people are totally bemused by what Britain is doing,’ adds Barry Devereux, his counterpart at McCann FitzGerald. Michael Jackson, managing partner at Matheson, notes: ‘We share some of the EU’s concerns around the practicality of solutions that have been discussed. It is clear that any delays at border controls will have a significant negative impact on supply chains, movement of goods and services, traffic congestion, demands on infrastructure customs and security resources.’
‘Some fear the UK firms coming, time to batten down the hatches. But if they are coming, it’s because their clients want them to be here because they’re going to do more business out of Ireland.’
Barry Devereux, McCann FitzGerald
Devereux points to ‘an increased awareness of how much cross-border trade we have with the north’. Last year, it exceeded $3.2bn. Meanwhile, Irish exports to the UK stand at $18.3bn – 13.5% of the annual total, making it Ireland’s second-largest export market after the US. Yarr summarises the challenge: ‘The reality is that there are 275 border crossing points in Ireland compared with 137 across the whole eastern flank of the EU. Ireland is, as an island, hermetically sealed. Once you put different trading arrangements in place it could cause all sorts of unforeseen problems. For companies in the food and agricultural space this is a material issue.’
Counting the cost
Some anticipate that the wider impact will be equally hard on both sides of the border. ‘All the research points to a potentially very significant cost for Ireland from Brexit, and the cost will vary depending on the hardness of the Brexit,’ says Declan Black, managing partner at Mason Hayes & Curran. ‘As a mirror of the economy, the legal sector will reflect that – I am very optimistic about 2018, but very uncertain from 2019 onwards.’ He sees the predicament as ‘potentially catastrophic’, adding: ‘Any reinstatement of any degree of border controls could be a trigger for renewed political violence – that would be a tragedy. There is a huge degree of intellectual dishonesty in what is being said by some politicians.’
Border questions aside, Brian O’Gorman, managing partner at Arthur Cox, remains upbeat: ‘Bank of America Merrill Lynch (BAML), JPMorgan Chase and Barclays are three big banks that are increasing their presence in Dublin. Then you’ve got asset management companies and private equity firms either setting up or expanding their operations.’
Catherine Guy, managing partner at ByrneWallace, is even more buoyant: ‘There is huge potential for Dublin to capitalise on Brexit, to become a complementary, as opposed to alternative, legal and business jurisdiction to London. Brexit presents an exceptional opportunity for Ireland to be the hub of EU-facing arms of UK banks and financial institutions, to service and supervise the potential business flows arising from Brexit.’
‘There is huge potential for Dublin to capitalise on Brexit, to become a complementary, as opposed to alternative, legal and business jurisdiction to London.’
Catherine Guy, ByrneWallace
In vying for business with its continental rivals, Dublin has succeeded in becoming the EU headquarters for Barclays and BAML while JPMorgan Chase plans to hire significant numbers there in its custody and funds business. In February, the Central Bank of Ireland (CBI) sent a reminder to financial services companies ‘seeking Irish regulatory authorisation in 2018 to engage with it as soon as possible’.
A consistent anti-Brexit campaigner, tax specialist Jolyon Maugham QC of Devereux Chambers observes: ‘We’ve given EU member states an opportunity on a plate to weaken our stranglehold over financial services.’ Brexit, he believes, ‘does spell the beginning of a long process in which the UK’s financial services industry slowly migrates to the continent’.
According to Jackson: ‘Businesses, and particularly regulated businesses for whom an EU passport is important, are planning for the worst-case scenario of a hard Brexit. We are currently advising a significant number of institutions across all sectors of financial services on their Brexit planning and have assisted many of them with applications to, and other interactions with, the CBI. Those institutions are looking at a wide range of solutions, including extension of existing licences, conversion of branches into subsidiaries and establishment of new subsidiaries.’
As contingency plans crystallise into action, more than 20 banks and asset managers are understood to have sought CBI authorisation with public announcements expected by the autumn. ‘Clients are taking more proactive steps to move forward with firm arrangements in place for Ireland; some of the institutions we’re talking to have material operations in London rather than here,’ says Bryan Bourke, managing partner at William Fry. ‘We need to see how it pans out in terms of the size of operations here and what works for the regulator – it’s not an easy move to another city from London and clients want to work through the options carefully.’
Yarr adds: ‘Ireland has seen some initial interest, but perhaps not as much as some had predicted, of Brexit-related investment, whether it be financial institutions or otherwise.’
‘The negative impact on the Irish economy and society means Brexit could rank with the financial crisis as the biggest event in my lifetime.’
Garry Ferguson, Walkers
Ireland’s fund industry already exceeds $3.7trn in aggregate value – a figure that could top $5trn by 2020, according to PwC – and services more than 40% of hedge funds globally. At offshore specialist Maples and Calder – the seventh-largest firm in Ireland, but ranked number one by Monterey Insight in the number of funds advised and new funds established – Dublin managing partner Nicholas Butcher is circumspect about any material shift of people because of Brexit. ‘It’s going to centre on legal and structuring requirements: asset managers and other clients in the regulated space will need to have a physical presence and substance as required by regulators. But it does not follow that we would necessarily see significant relocations, either to Ireland or to other jurisdictions it is competing with: Luxembourg, Germany, France and the Netherlands.’
Focused predominantly on financial services, Walkers’ managing partner in Dublin, Garry Ferguson, is also experiencing increased demand in banking, investment management and insurance work. ‘With the number of live applications for licensing in these areas currently with the CBI and those lining up for submission to the CBI, Brexit is already a reality.’ But the broader picture, he suggests, is one of contrasts: ‘Brexit will potentially bring a huge benefit to Dublin in the migration of regulated financial service firms from London. Away from that bubble, the potential negative consequences for Ireland are too many to summarise. Our economy, society and culture are inextricably linked to the UK and we are more dependent on the UK than they are on us. The negative impact on the Irish economy and society means that Brexit could rank with the financial crisis of 2008 as the biggest event in my lifetime.’
Little upside
Notwithstanding such fears, Brexit has made the Irish legal market more attractive for some international firms as Dublin bids to become a new European hub for commercial law. In line with their clients, firms have been re-examining their European footprint to maintain access to the single market, EU courts and decision-making bodies. Adding to already intense domestic competition, three firms opened in Dublin last year, seeking to capitalise on post-Brexit work: Simmons & Simmons, which will focus initially on asset management clients; Covington & Burling, which has launched a life sciences and technology-focused practice; and Pinsent Masons, which is targeting financial services and technology.
‘There are two attitudes,’ says Devereux. ‘Some are fearful – the UK firms are coming, time to batten down the hatches. But our view is: if they are coming, it’s because their clients want them to be here because they’re going to do more business out of Ireland – that means the economy is going to grow.’ Yarr also sees it as a vote of confidence: ‘The reality is that being such an open economy with very large international corporations here for several decades has also brought international law firms to Ireland. We’ve worked in co-operation and in competition with them for many years. Very few mandates have now got only Irish lawyers on them.’
‘Brexit, whichever colour or shape is finally adopted, is likely to create legal and psychological barriers for the movement of goods and services.’
Ignacio Corbera Dale, Garrigues
Since the Brexit referendum, more than 1,300 English lawyers have re-qualified in Dublin: a straightforward process given the shared common law heritage between both jurisdictions. Slaughter and May, Allen & Overy and Hogan Lovells were among the firms that initially applied to join the Irish Law Society roll, but ahead of the pack last year were Eversheds Sutherland and Freshfields Bruckhaus Deringer, which had 132 and 130 registered Irish lawyers respectively. ‘Qualifying is a bit of a misnomer,’ says O’Gorman. ‘It’s purely for maintaining rights and privilege before the EU courts and institutions – there’s no desire to practise in Ireland.’
He anticipates that: ‘It is highly unlikely that we will see a major international firm merging with one of the leading domestic Irish firms. If such a firm decides to establish operations in Ireland, the more likely model is a cohort of partners moving to Dublin, perhaps supplemented by some lateral hires from the leading Irish firms.’ According to Smith & Williamson’s Annual Survey of Irish Law Firms, nine of the top 20 were approached for merger or acquisition discussions by a UK law firm last year, primarily as a result of Brexit.
Elsewhere, there is no schadenfreude among lawyers expected to benefit from any glacial shift of work to Frankfurt, or other financial centres. ‘Even if it is really a full Brexit without bilateral treaties or comparable statutes, some London-based financial institutions may have to move resources to the continent, but I doubt that London will lose its global position as a financial and commercial hub for the world,’ concludes Tobias Bürgers, managing partner at Noerr.
French and Italian lawyers are less concerned about Brexit, but in Iberia there is palpable anxiety – not least because Britain ‘will be lost as a political counterweight to Germany and France’, according to João Vieira de Almeida, managing partner at VdA in Portugal. He offers a nuanced summary: ‘Most clients still seem to expect a soft Brexit that will leave their basic interests unscathed. Some – mostly non-European, non-financial corporates – expect to reap benefits from a new British trading policy, open to new markets and partnerships. On the trading front, Portugal and Spain may well end up in different positions vis-à-vis Britain, as each country strives to become more attractive than the other for British trade and investment. For local law firms, Brexit may be an empowering tool given that the convergence between common and civil law will probably slow down.’
Ignacio Corbera Dale, London office head at Garrigues, the largest firm both in Spain and in continental Europe, says: ‘Brexit, whichever colour or shape is finally adopted, is likely to create legal and psychological barriers for the movement of goods and services. Even if there are any benefits, which is doubtful, from an Iberian perspective it doesn’t make much sense talking about upsides when, most probably, the downsides of Brexit are many.’
Jackson concludes: ‘The disruption caused to trade between Ireland and the UK, and between the UK and the rest of Europe, will ultimately, in our view, have negative consequences for long-term growth in the Irish, UK and European economies.’ LB
The London lobby: City Law makes its presence felt on Brexit
Ever since the referendum in June 2016, City law firms have been involved in discreet lobbying to mitigate the adverse effects of Brexit and because legal services contribute £27bn to the UK economy, the hope is the government will listen. Among last year’s notable events was a series of unpublicised meetings at Freshfields Bruckhaus Deringer – attended by Lord Thomas, then Lord Chief Justice; Liz Truss, then Justice Secretary; and several QCs from the commercial Bar. A prominent silk among their number says that: ‘In light of the post-Brexit world, they need to pull together to promote UK Legal plc.’
According to White & Case partner James Greig: ‘For clients in continental Europe Brexit is a nuisance – it’s about how to maintain business.’ In the UK, he adds, ‘the biggest sophisticated players in financial services had the Bank of England and European regulators, the ECB [European Central Bank] and the EBA [European Banking Authority] , telling them to have contingency plans ready’. The EBA ‘fired a pretty conclusive shot recently’, he says, by stating that ‘applications for European structures need to be with them by the end of June 2018 otherwise they will miss the boat if it’s a hard Brexit. This has meant a lot of discussion, planning and heavy lifting’.
The overall response of clients has been polarised. ‘While the biggest financial institutions are moving under regulatory pressure, many smaller financial institutions share the same position as many of our other clients: a combination of denial or a bit of hypothetical contingency planning,’ says Greig. ‘There are still a lot of people hoping that somehow it will all go away.’ As a result, he concludes: ‘We are getting relatively little pure Brexit-driven work.’
Paul Butcher, Brexit director at Herbert Smith Freehills, also sees many businesses still adopting a wait-and-see approach. ‘They are hoping that things are going to become clearer, and understandably not wanting to incur cost or management time until absolutely necessary,’ he says. ‘But those waiting for certainty are going to be disappointed. In terms of legal certainty, we’re probably not going to know whether we’ve got a transition deal until perhaps February or even March 2019.’
Published in February, The EU’s draft Withdrawal Agreement puts last December’s political deal on regulatory alignment between Northern Ireland and the Republic – ensuring that the border remains open without security or customs checks – into a legal framework, outlining how a transition term would work. However, the key deadline, suggests Butcher, is October 2018 – the date given by the EU’s chief Brexit negotiator Michel Barnier for a final agreement on a transition deal. If no deal is agreed in principle by then, there will be no deal by March 2019.
‘Legal London doesn’t operate in a separate sphere to London as a global financial centre,’ says Oliver Brettle, London executive partner at White & Case. ‘If there is a decline of London as a leading financial centre because of Brexit, there will be a decline of London as a legal centre, full stop: the two are inextricably linked. We still don’t know what the implications of Brexit are going to be. But we do know, with some certainty, that there will be some decline in the City of London because there will be business written in Europe that would otherwise have been written in London.’